The decision
The Bank of Canada held its target for the overnight rate at 2.25% today, with the Bank Rate at 2.5% and the deposit rate at 2.20%.
Translation: if you're shopping for a variable-rate mortgage or a HELOC (home equity line of credit — basically a flexible second mortgage), your rate isn't changing this month. Fixed rates, which move on bond yields, have nudged up a bit since January but remain fairly stable.
Why they're on pause
Two big forces are colliding: the evolving conflict in the Middle East is causing wild swings in energy prices and trade routes, and US trade policy keeps reshaping who sells what to whom. Both create uncertainty the Bank can't ignore.
The Bank's April outlook assumes tariffs stay where they are and that the global benchmark price of oil will drop to US$75 per barrel by mid-2027. Right now, the Iran war has pushed energy prices sharply higher, hurting growth in countries that import oil and lifting inflation worldwide. The US economy is expected to keep growing — driven by AI investment and consumer spending — while China's exports stay strong and Europe struggles with costlier oil and natural gas.
What's happening in markets
Financial conditions have been all over the map, reacting to daily Middle East news and shifting bets on inflation and interest rates. Bond yields are modestly higher since January. Equity markets tanked when the war started, then bounced back. Since the war began, the US dollar has strengthened against most major currencies, but the Canada-US exchange rate has held relatively steady.
For your mortgage: bond yields drive fixed rates, so that modest uptick means five-year fixed rates are a touch higher than they were in January — but nowhere near the peaks of a couple of years ago.
The global picture
The Bank expects the global economy to grow by about 3% in 2026, 2027, and 2028. Inflation forecasts for the next year are revised up because of the jump in energy prices.
What's happening in Canada
The outlook for economic growth in Canada hasn't changed much from the January Monetary Policy Report. After a contraction in the fourth quarter of 2025, growth is forecast to have resumed in early 2026. Consumer and government spending are keeping the economy moving, while tariffs and trade uncertainty are dragging on exports and business investment.
Housing activity fell in the fourth quarter and is being held back by slow population growth, economic uncertainty, and ongoing affordability issues. The labour market is soft — employment growth has been weak over the past year, with job losses in sectors targeted by US tariffs. The unemployment rate is sitting in the 6½%–7% range, reflecting both weak hiring and fewer people looking for work.
The growth forecast
The Bank's April forecast projects GDP growth of 1.2% in 2026, rising to 1.6% in 2027 and 1.7% in 2028 as exports and business investment pick up again — though on a lower trajectory than before. With GDP growing slightly above potential, the current excess supply in the economy is gradually absorbed.
Here's the twist: while the Iran war may change the composition of growth, overall GDP growth is little changed in the updated forecast. Since Canada is a large net exporter of oil, higher oil prices increase national income even as you're squeezed by pricier gas at the pump.
Inflation: the immediate spike
CPI inflation climbed to 2.4% in March because of sharply higher gasoline prices. The March increase follows several months of slowing inflation data. Core inflation (which strips out volatile items like gas and food) has been easing and held steady at just above 2% in the most recent report. The proportion of items in the CPI basket rising above 3% has also declined in recent months.
So far, there's little evidence that oil prices have fed through more broadly to goods and services prices — but the Bank is watching closely. Near-term inflation expectations have moved up with higher gas prices and still-elevated food price inflation, but longer-term expectations have remained anchored around 2%.
Where inflation is headed
CPI inflation will likely rise further in April to about 3%. Based on the assumption that oil prices will ease, inflation is forecast to come down to the 2% target early next year and remain around 2% over the projection horizon.
What that means for you: the Bank isn't panicking. They're looking through the war's immediate impact on inflation but won't let higher energy prices become persistent inflation. Translation: they'll tolerate a short-term spike, but if it looks like higher costs are spreading and sticking, expect rate hikes.
The Bank's message
Against this backdrop and taking into account the current projection, Governing Council decided to maintain the policy rate at 2.25%. They're closely monitoring the impact of the conflict in the Middle East and how the economy is responding to US tariffs and trade policy uncertainty. As the outlook evolves, they stand ready to respond as needed. The Bank is committed to maintaining your confidence in price stability through this period of global upheaval.
What to do with this
If you're renewing or shopping for a mortgage right now, this is what matters: variable rates are on hold, fixed rates are slightly higher than January but still historically reasonable, and the Bank is in wait-and-see mode. If you're weighing a variable versus a fixed, the call depends on your risk tolerance and how long you plan to hold the mortgage — not on trying to time the next rate move.
The next scheduled date for announcing the overnight rate target is June 10, 2026. The Bank's next Monetary Policy Report will be released on July 15, 2026. Source: Bank of Canada Website
